UK charities are losing out as a result of currency volatility and high transaction costs, according to a new study that shows how donations to multinational organisations are often eroded by the foreign currency market.
Almost half of UK non-profits had to use donated funds to make up for losses suffered as a result of transferring money abroad, according to a survey by Charitytransfers.org, a division of the London-headquartered consultancy Audere Solutions and accounting company Crowe.
The poll of 114 organisations highlights a perennial issue for charities that have projects in different countries around the world, and that can detract from their ability to meet their missions.
Only a quarter of those surveyed had an official policy for ensuring currency conversion costs are kept to a minimum, while a third said they did not understand or know how to calculate the cost of their international payments.
At the same time, few companies attempt to protect themselves against large moves in currency markets, with only 11 per cent of respondents using derivatives such as forwards to hedge against such shifts.
“The results unfortunately suggest that many [charities] may be exposed to poor execution terms, inconsistency, and ultimately higher costs,” the report from Charitytransfers.org said. “This result means many [charities] will struggle to control or reduce remittance costs — after all it is hard to do so without accurately knowing the cost in the first place.”
Charities have been badly hit by the pandemic, which has led to fewer opportunities for fundraising and left many organisations nursing severe shortfalls in their funding. Foreign exchange costs represent another headwind executives at these groups are faced with.
Charities receive donations from two key channels: government organisations and other official bodies, which often earmark funds for a specific project or purpose, or public donations. The latter often give so-called unrestricted funding, which can be sliced and diced according to the charity’s needs.
Almost half of the 114 companies had to reach for such funds to top up the amount they send abroad due to adverse currency moves and high transaction costs.
Charitytransfers.org noted that many of these foreign exchange issues had affected charities for many years, yet potential remedies “have not yet been widely adopted”.
The cost of sending money overseas to pay for charitable projects has long plagued the sector, with a 2011 report from Stamp Out Poverty identifying up to £50mn of unnecessary expenditure every year due to foreign exchange transactions.
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